The Role of Agricultural and Other Policies in Promoting Rural Development in China

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Economics and Development Chinese Academy of Agricultural

1 China: Short-term policy responses to higher and volatile food prices Li Xiande Professor Institute of Agricultural Economics and Development Chinese Academy of Agricultural Sciences (CAAS) June 29-30, 2009 OECD Global Forum on Agriculture, Paris

2 Outline I. Major pressures II. Policy responses III. Conclusions

3 I. Major pressures Inflation Price increases Grain supply and demand Expenditures on agricultural imports Household food consumption

Inflation High world food prices put pressures on domestic inflation in China. In 2007, CPI reached a 10 year record high with 4.8%, food price increased by 12.3%.

4 Inflation High world food prices put pressures on domestic inflation in China. In 2007, CPI reached a 10 year record high with 4.8%, food price increased by 12.3%. Official statistics showed the food price contributed to 83% of CPI increase. In 2008, CPI was even higher with 5.9%, food price increased by 14.3%. Food price contributed to 79% of CPI increase. increase of domestic pork price was closely related to increasing world corn price, the increase of edible oil prices in China followed the price trend of soybean in international market

Per cent Year-on-year Inflation in China, Jan.

CPI Grain Food 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月

5 Per cent Year-on-year Inflation in China, Jan April 年 1 月 2007 年 2 月 2007 年 3 月 2007 年 4 月 2007 年 5 月 2007 年 6 月 2007 年 7 月 2007 年 8 月 2007 年 9 月 2007 年 10 月 2007 年 11 月 2007 年 12 月 2008 年 1 月 2008 年 2 月 CPI Grain Food 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月 2008 年 8 月 2008 年 9 月 2008 年 10 月 2008 年 11 月 2008 年 12 月 2009 年 1 月 2009 年 2 月 2009 年 3 月 2009 年 4 月

6 Price increases Through international trade (or border smuggling of rice) Grain market information dissemination and market integration Increasing fund flows to grain future market The anticipated price increase made farmers and traders unwilling to sell in the markets

7 Wheat price (Yuan/ton) World price and domestic price: wheat 年 1 月 2007 年 2 月 2007 年 3 月 2007 年 4 月 2007 年 5 月 2007 年 6 月 2007 年 7 月 2007 年 8 月 2007 年 9 月 2007 年 10 月 2007 年 11 月 2007 年 12 月 China wholesale price 2008 年 1 月 2008 年 2 月 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月 2008 年 8 月 World price 2008 年 9 月 2008 年 10 月 2008 年 11 月 2008 年 12 月 2009 年 1 月 2009 年 2 月 2009 年 3 月 2009 年 4 月 2009 年 5 月

8 Rice price (Yuan/ton) World price and domestic price: rice 年 1 月 2007 年 2 月 2007 年 3 月 2007 年 4 月 2007 年 5 月 2007 年 6 月 2007 年 7 月 2007 年 8 月 2007 年 9 月 2007 年 10 月 2007 年 11 月 2007 年 12 月 China wholesale price 2008 年 1 月 2008 年 2 月 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月 2008 年 8 月 World price 2008 年 9 月 2008 年 10 月 2008 年 11 月 2008 年 12 月 2009 年 1 月 2009 年 2 月 2009 年 3 月 2009 年 4 月 2009 年 5 月

9 Corn (Yuan/ton) World price and domestic price: corn 年 1 月 2007 年 2 月 2007 年 3 月 2007 年 4 月 2007 年 5 月 2007 年 6 月 2007 年 7 月 2007 年 8 月 2007 年 9 月 2007 年 10 月 2007 年 11 月 2007 年 12 月 China wholesale price 2008 年 1 月 2008 年 2 月 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月 2008 年 8 月 World price 2008 年 9 月 2008 年 10 月 2008 年 11 月 2008 年 12 月 2009 年 1 月 2009 年 2 月 2009 年 3 月 2009 年 4 月 2009 年 5 月

10 Soybean price (Yuan/ton) World price and domestic price: soybean 年 1 月 2007 年 2 月 2007 年 3 月 2007 年 4 月 2007 年 5 月 2007 年 6 月 2007 年 7 月 2007 年 8 月 2007 年 9 月 2007 年 10 月 2007 年 11 月 2007 年 12 月 China wholesale price 2008 年 1 月 2008 年 2 月 2008 年 3 月 2008 年 4 月 2008 年 5 月 2008 年 6 月 2008 年 7 月 2008 年 8 月 World price 2008 年 9 月 2008 年 10 月 2008 年 11 月 2008 年 12 月 2009 年 1 月 2009 年 2 月 2009 年 3 月 2009 年 4 月 2009 年 5 月

11 Grain supply and demand China's grain balance is in a very tight status. In 2007, China s per capita grain availability was 380 Kg, while per capita consumption was 388 Kg. It s projected that per capita consumption of grain will reach 389 Kg in 2010 and 395 Kg in 2020.

12 Increasing expenditure on Ag imports Agricultural trade deficit in China increased sharply from US$ 1 billion in 2006 to US$ 4.4 billion in 2007, and further to US$ 18.1 billion in Specifically, In 2007 and 2008, China s soybean imports increased by 9% and 21% respectively in quantity, but by 53% and 90% in value terms, or unit price increased by 40% and 57%.

Billion US $ Agricultural trade in China, 2003-2008 70 60 50 40 30

13 Billion US $ Agricultural trade in China, Export Import Balance

14 Household food consumption As food price increased, the Engel coefficient (food expenditure/living expenditure) also increased. Urban residents: from 35.8% in 2006 to 36.3% in 2007 and 37.9% in Rural residents: from 43% in 2006 to 43.1% in 2007 and 43.7% in The living standard of low-income group is affected by increasing price of food.

15 II. Responses Policy on grain security Policy on biofuel development Policy on export Government support for grain production Minimum purchase price Temporary government procurement and stock

16 Policy on grain security Middle and Long Term Plan for Grain Security ( ) Stability of sown areas: Cultivated land areas no less than 120 million hectares by 2020;Grain sown areas at around 84 million hectares; Sown areas for oilseeds crops at 12 million hectares. Basic self-sufficiency on important staple foods: with grain self-sufficiency at above 95%; Basic self sufficiency for livestock products and aquatic products. Maintenance of grain stock at reasonable level.

17 Policy on biofuel development As the grain prices increase, the biofuel development with grain as material was strictly restricted. In August 2007, China decided not to approve any more the bio-ethanol project with grain as materials. China is implementing the policy Development of biofuels with non-food sources.

18 Policy on export Since January 2008: Levying provisional export taxes on grains and their flour products; Removal of the VAT export rebate; Export license management for wheat, corn and rice flour products. Export tariff cancelled (maize and soybean) or reduced (wheat, rice, corn flour and wheat flour ) from December 2008 when the grain situation changes. Export rebate is resumed.

Government support for grain production Four types of subsidies (direct payment, subvention for improved seeds, subvention for agricultural machines and subvention for

19 Government support for grain production Four types of subsidies (direct payment, subvention for improved seeds, subvention for agricultural machines and subvention for purchase of fertilizer, diesel) amounted 51 billion Yuan in 2007, increased by 66%, 103 billion Yuan in 2008, increased by 100% and 123 billion Yuan in 2009, increased by 20%.

20 Billion Yuan Budgetary support for grain production: Direct payment to grain producers Subvention of improved seeds Comprehensive subsidy to ag inputs Subvention to purchase of ag machines

21 More financial resources Investment on agriculture and rural development increased by 22.8% in 2007 and 37.9% in Expenditure in 2009 amounted to billion Yuan, increased by 20.2% (planned budget). Grain production : 5 years consecutive growing harvests. --The grain production reached nearly 530 million tons in 2008, +5.4%.

22 Million tons Growth rate (%) Grain production and annual change Grain output Year-on-year growth rate

23 Minimum purchase price In order to encourage farmers to produce more grain and to respond to the world food situation, Chinese government increased minimum purchase prices in 2008 and in The price level increased by 4-7% for wheat and about 10% for paddy rice in The price level increased by % for wheat and 16-17% for paddy rice in 2009.

24 Minimum purchase price (Yuan/ton) Early Indica paddy rice Middle and late Indica paddy rice Japonica paddy rice White wheat Red and mixed wheat

25 Temporary government procurement and stock In order to regulate the market, apart from government procurement of wheat and rice with minimum price, temporary government stock is also applied to soybean, rapeseeds and corn since October Government stock is also used for pork in 2009.

26 III. Conclusions Positive outcomes of policy responses to the higher and volatile prices: increased grain production and domestic price stability. The impacts of pricing policies and government procurement need to be further studied.

27 Thank you for your attention

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